Gorgon monstered by dollar but Chevron escapes damage

Ben Butler

THE high dollar and extra logistics are to blame for a $US15 billion ($A14.4 billion) cost blowout at Australia's biggest natural gas project, Gorgon, according to the US energy giant driving the project, Chevron.

Chevron chief executive John Watson said the high Australian dollar - worth about $US1.04 on Sunday, compared to about US86¢ when Gorgon was given the go-ahead in 2009 - contributed ''about a third'' of the cost increase.

The Gorgon natural gas project off Western Australia's north-west coast has been hit by rising costs.

Speaking to analysts on Saturday, Australian time, Mr Watson said the project also faced ''fairly unique'' logistics problems moving larger than expected amounts of construction materials to Barrow Island, where it is building a liquefied natural gas plant.

Last month, Chevron revealed the expected cost of developing Gorgon, which is about 130 kilometres off the north-west coast of Western Australia, had surged from $US37 billion to $US52 billion.

The Gorgon cost blowout has led Chevron's partner in the project, Royal Dutch Shell, to signal it will reconsider further investment in the ''overheated'' Australian market.

Chevron owns 47.3 per cent of Gorgon. Shell and ExxonMobil each own 25 per cent, with the rest held by two Japanese energy companies.

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Mr Watson said Gorgon ''was over 55 per cent complete at year-end''.

He said Chevron would apply lessons learned at Gorgon to another Australian gas project, Wheatstone, off the Pilbara. ''So, for example, we're working very hard right now on simple things like beds and roads and infrastructure, and that is going quite well at the moment,'' he said.

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''At times we were impacted by weather as we were constructing the beds and other facilities and infrastructure in the early days of Gorgon. There were a number of cyclones that went through the area, and that impacted us.''

He said Chevron's ''legacy LNG projects in Australia'' were among projects that would be supported by $US36.7 billion in capital expenditure set to take place this year.

Mr Watson was speaking after announcing Chevron's fourth-quarter profit soared 41 per cent, to $US7.2 billion, compared to the same period in the previous year, driven in part by the sale of its share in the Browse project to Shell.

In a deal announced in August, Chevron swapped its interest in Browse, a gas project off the Kimberley led by Woodside, for Shell's interests in two other fields and $A450 million cash. It boosted Chevron's fourth-quarter earnings by $US1.4 billion, chief financial officer Patricia Yarrington told analysts.

Stacey Hudson, an analyst at Raymond James, estimates the exchange was worth US72¢ per share, which would put Chevron's adjusted earnings eight cents below what analysts had expected but US40¢ higher than the fourth quarter of last year. Chevron's results were also helped by the sale of the company's Caribbean fuels marketing operations.

Excluding the gain from the Australian asset sale, Chevron's net income rose 14 per cent in the quarter.

Chevron's production rose to 2.67 million barrels of oil and gas per day (mbpd) for the quarter, up slightly from a year ago but up substantially from the 2.5 mbpd in the third quarter last year.

Production has been hurt by the temporary closure of its Brazilian offshore project in the Frade field since oil was found to be seeping from the field in November 2011 and again in March 2012.

Also over the weekend ExxonMobil, the biggest US oil company, said its fourth-quarter earnings rose six per cent to $US9.95 billion - just short of its 2008 record - with help from higher refining profit margins. But revenue fell five per cent to $US115.17 billion, a drop of $US6.44 billion.